Commercial tenants typically pay a monthly rent for leased space for offices or the like based on the square footage of the space. Commercial office rent is calculated based on taxes, operating expenses, debt service, tenant construction costs, marketing costs and profit (or return on landlord investment). Landlords evaluate these costs on a per-square-foot basis. The only part of the rent a tenant typically can negotiate is the profit segment, which is usually 5% to 15% of the rental rate. By reducing the amount of space required by a tenant, however, the effect is cost reduction on the entire rent, not just the profit portion. A tenant may thus realize substantial rent savings if they reduce the space they lease by reducing inefficient architectural designs and avoiding buildings that have low efficiency ratings.
In view of the above, it is becoming increasingly important for tenants to accurately determine the amount of leased space that they actually require so design and architectural inefficiencies can be identified and eliminated. Real estate leasing firms, brokers and professional licensed architects predominantly use a multiplier to calculate space requirements. For example, the multiplier could be 200 square feet per person so that a company with 50 people would have a calculated requirement of 10,000 square feet. But some industries need more space per person because of the size and mix of executive offices and workstations. For example, attorneys and accountants may need 250-300 square feet per person because they typically use a higher ratio of offices to cubicles. Insurance companies and software consultants, however, use more cubicles than offices and may need only 150 square feet per person.
In addition, real estate leasing firms and architectural firms typically don't consider that every company has its own distinct space requirements. An analysis of the needs of two companies with similar revenues in the same industry may provide two very different results. For example, one company might want a twenty-person boardroom while the other wants a twelve-person conference room. One may decide a 6′×6′ cube is big enough for employees while the other will opt for 8′×8′ workstations (almost double the space). One president might want a modest 12′×15′ office, the other a 20′×30′ oasis with a private washroom and a wet bar. Companies may also have their own set of workspace standards, which can vary as much as 75% across an industry. Despite this variety of company needs, brokers and architectural firms typically still use the antiquated ‘rule of thumb’ multiplier approach to estimate space requirements, which often leads to considerable over-sizing of the tenant's space.
Another disadvantage for tenants in the ‘how much space do you need?’ scenario is the fact that landlords, as a marketing device, often offer free space planning to potential tenants. Oftentimes, however, the landlord's architect does the planning. This is beneficial for the landlord, who usually negotiates a ‘quantity discount’ rate with the architect for the planning services, but not so beneficial for the tenant because the architect is paid by the square foot. As a result, the larger the space architects lay out for tenants, the more the architects are paid. Both the architect and the landlord therefore want to see the tenant contract for as much space as possible. As a result, efficient space planning is rarely emphasized by landlords or their architects.
Building spaces often feature inefficiencies which reduce the amount of actual usable square footage and, in turn, increase the amount of space tenants will need to lease. More specifically, because of numerous factors, the space efficiency of buildings varies greatly. Columns, HVAC apparatus, building loss factors and unusual building shapes (curved sides and any angles other than 90°) increase space inefficiency and are all elements that can vary greatly from building to building. As a result, the actual usable space that is available to a tenant is actually less than the amount advertised by the landlord. Because of these varying inefficiencies from building to building, one building will require a 10,000 square foot space for a tenant while another less efficient building will need 11,000 square feet for identical tenant requirements. Using this “space efficiency” concept, a tenant can realize substantial rent savings.
In view of the savings available to tenants, systems and methods for matching actual tenant space requirements with the appropriate commercial leased space have been developed. One such prior art system uses the Space Analysis Report software developed by Leasecorp, Inc. of Oak Brook, Ill. This software itemizes a tenant's requirements so that a net usable square footage requirement is calculated. To this, a circulation factor is added to obtain a gross usable square footage requirement. The circulation factor is usually between 25% and 50% of the net usable square footage requirement, depending on the number of workstations versus private offices and larger work areas. A landlord's building loss factor for a specific building, usually obtained using Building Owners and Managers Association International (BOMA) standards, is added to the gross usable square footage requirement to obtain a gross rentable square footage requirement for the building. An example of the calculation is presented in the Table 1.
TABLE 1Prior Art Calculation of Required SpaceNet UsableSimply the net square footage when10,500Square Footageall area requirements are addedRequirement:together (before circulation):CirculationAn estimated percentage multiplier3,150Factor:for circulation aisles betweenwork areas and ingress/egressaisles. In this case, 30% was used.Gross UsableThe sum of net usable square13,650Square Footagefootage and circulation area asRequirement:determined by the circulationfactor add-on.Building LossThe percentage determined by1,911Factor Add-on:landlord (usually using BOMAstandards) to gross up usablesquare footage to rentablesquare footage. In this case,14% was used.Gross RentableTotal space that should be15,561Square Footagerequired to lay out the givenfor Building:requirements in this particularbuilding:
While the Space Analysis Report software performs well, manually estimating the circulation factor is only slightly more scientific than the historical “multiplier” process. In addition, the space projections provided by the software sometimes come up short due to building inefficiencies when applied to buildings that are older, irregularly shaped (outer walls having curves and/or odd angles) or that have large heating mechanisms on the perimeter. This is because these inefficiency factors are not included in BOMA calculations.
A need therefore exists for a system and method that permits a tenant or other user to accurately project the tenant's actual space needs and that permits a tenant or other user to project the actual usable and rentable square footage that will be required in assorted buildings with varying efficiencies.